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large commercial cities, as New York, Boston and Philadelphia, the purchase and sale of stocks in rail-roads, banks, insurance companies, &c., is a regular and extensive business of capitalists.

CHAPTER XXIV.

BANKS AND INSURANCE COMPANIES.

§ 1. We are informed that the first institution of banks was in Italy, where certain Jews kept benches in the market places for the exchange of money and bills; and banco being the Italian name for bench, banks took their title from this word. The first banks are supposed to have been only places where money was laid up or deposited for safe keeping. But banks at the present day are not used for depositing alone.

§ 2. Banks in this country can be established only by authority of law. If the inhabitants of a place want a bank, they petition the legislature to incorporate a banking association. The act of incorporation prescribes the manner in which the company shall be formed, how its business shall be done, and the amount of capital or stock to be employed. The capital of a bank is raised by the sale of shares and issue of certificates, as in the case of railroads, (Chap. XXIII, §13, 14.)

§ 3. The stockholders elect of their number, usually thirteen directors, who choose one of themselves to be president. The president and directors choose a cashier and clerks.

§ 4. A part of the business of banks is still that for which they were originally established, namely, the receiving of money on deposit. Merchants and others in commercial places, deposit in a bank, for safe-keeping, the money they receive in the course of business, and then draw it out on their written orders as they have occasion to use it. An order of this kind is called check. Persons depositing money only occasionally, and intending to draw for the same at

once, usually receive from the cashier a certificate of deposit, which states the name of the depositor, the sum deposited, and to whose order it is to be paid. For the use of money deposited for any considerable period, banks agree to pay interest, usually, however, less than the established or ordinary rate. Certificates of deposit may, by indorsement, be made transferable as other negotiable paper, and are often remitted to distant places, where, by presentation at a bank, they may, for a trifling compensation, be converted into money.

§ 5. Another kind of business done by banks is, to assist merchants and others in transmitting money to distant places. An operation of this kind is performed thus: A, in Boston, wishing to send $1,000 to B, in Philadelphia, puts the money into a bank in Boston, and takes for it an order, or draft, on a bank in Philadelphia, for that amount, to be paid to B. The draft is sent by mail to B, who calls at the bank and receives the money; and the bank charges the amount to the Boston bank.

§ 6. But how does the bank in Philadelphia get the money from the bank in Boston? There are in Philadelphia business men who have occasion to remit money to Boston, and who pay their money into the Philadelphia bank, and take drafts on the bank at Boston. The banks at both places are constantly receiving money and drawing upon each other. Thus the transmission of millions of dollars may be performed every year through the banks, without any expense except the small charge of the banks for transacting the business and a vast amount of travel, and the risk of loss by accident or robbery, which attends the conveyance of money in person, are avoided.

§ 7. A material part of the business of banks is to lend money. A person wishing to borrow money at a bank, makes a note for the sum wanted, which is signed by himself, and indorsed by one or more others as sureties. For this note the cashier pays the money, usually in the bank's own bills, retaining the interest on the sum so lent, instead of waiting to receive it when the note becomes due. This is called discounting a note.

§ 8. Banks are allowed to issue their own bills as money. A bank bill or note contains a promise to pay the bearer a certain sum on demand, and is signed by the president

and cashier. It passes as money, because the bank is bound to pay it in specie, if it is demanded. Paying notes thus is called redeeming them. When a bank is unable to redeem all the bills it has issued, it is said to fail, or to be broken. In such case, the bill-holders suffer loss, unless some security has been provided.

§ 9. For the security of bill-holders, the stockholders of banks are, in some states, made individually responsible for the redemption of their bills; that is, their individual property is liable to be taken for that purpose. In a few states, safety funds have been provided for redeeming the bills of broken banks. A yearly tax is levied upon the several banks of the state, until a sum has accumulated which is deemed sufficient to meet all supposable failures. When this fund has been exhausted, it is replenished by

renewed taxation.

§ 10. But a system of banking, called free banking, has more recently been adopted in some states. This system is designed to provide more effectually for the security of bill-holders, and throws open the business of banking to all, by a general law. Any person, or any number of persons, may, by complying with the conditions of this general law, establish a bank without a special law for this purpose. Persons, before commencing business under this law, are required to put into the hands of the proper state officers, ample securities for the redemption of their bills; and they may not issue bills to a greater amount than the amount of their securities. These securities must consist of approved state stocks, or United States' stocks, or partly of public stocks and partly of real estate. When a bank fails, the lands and stocks held in pledge by the state are sold, and the avails applied to the redemption of bills. This system of banking seems to be growing into public favor.

§ 11. Insurance companies also are authorized by law. Their business is to insure persons against loss by fire. The corporators, on being paid a small sum, consisting of a certain per centage on the amount for which the property is insured, agree to pay such amount if the property shall be destroyed by fire. There are companies also for insuring ships and other vessels at sea; and life insurance companies, that agree to pay, in case of the death of the person insured,

a certain sum for the benefit of his family, or of some other person or persons named in the policy.

§ 12. The profits to the stockholders of an insurance company, consist of the excess of premiums received over the amount paid out for losses. Thus, if a company has issued 2,000 policies, each covering property of an average amount of $1,000, the amount of risk is $2,000,000; and if the rate of insurance is one per cent., the amount received in premiums is $20,000. Hence, if none of the 2,000 buildings insured are burned within the year, this sum is gained. If ten of them should be burned, the gain would be $10,000 less. If twenty should be destroyed, there would be no gain, but an actual loss to the amount of the necessary expenses of the concern, to be paid out of the capital stock of the company.

§ 13. But from the average number of losses annually during a long course of years, companies are enabled so to fix the rates of insurance, as to secure to the stockholders a fair profit on their capital. The rates of insurance are not the same on all property; a higher per centage being charged on that which is deemed hazardous; that is, more exposed to fire, than is charged on that which is less exposed. The profits on the business of the company, are annually or semi-annually divided among the stockholders in proportion to the amount of their respective shares, and are called dividends.

§ 14. There is another kind of insurance companies, which differ materially from the stock companies described in the preceding sections. They are called mutual insurance companies. They are so called because the members unite in insuring each other. Every person having his property insured by such a company, is a member of it. He has his buildings and the property in them valued; and he pays a certain rate per cent. on such valuation. A fund is thus raised, out of which any member suffering loss by fire is paid the value of the property lost. Whenever the fund is exhausted, it is again supplied by a tax assessed upon the members in proportion to the value of each one's property insured.

CHAPTER XXV.

JUDICIAL DEPARTMENT; JUSTICES' COURTS.

§ 1. In the preceding chapters it has been shown how. the laws of the state are made, and how the government is administered; and also what are the powers and duties of officers in the legislative and executive departments of the government. There is another class of officers, whose powers and duties remain to be described, called judicial officers. Their business is to administer justice to the citizens; and when sitting for that purpose, they are called a court.

§ 2. It is the legislature of the state which determines what acts shall be deemed public offenses, and what shall be considered right and just between the citizens; but to judge of and interpret the laws, and decide whether they have been violated, and to determine the proper measure of justice, is, as has been observed, wisely committed to a separate and distinct department. (Chapter IX, § 8.)

§3. A government without some power to decide disputes, to award justice to the citizens, and to punish crime, according to the laws of the state, would be incomplete. It would be improper to allow every man who thinks himself injured to be judge in his own case, and to redress his own wrongs. Justice is best secured to the citizens by establishing courts for the redress of injuries, and for the punishment of crimes; and that no injustice may be done to any member of the community, constitutions require, that in all cases of crime, however openly committed, the offender shall have a fair and impartial trial.

§ 4. There are several courts in each state. Some are of a higher, others of a lower order by which is meant, that some have greater jurisdiction than others. In speaking of the jurisdiction of a court, reference is had to its power to pronounce the law. The word jurisdiction is composed of two Latin words, jus, law, or juris of the law, and dictio, speaking; hence juris dictio, a speaking or pronouncing of the law. The jurisdiction of a court therefore means its power to determine questions in law.

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